Motorola calls for industry consolidation
Message 18913095
<<Oh. Elmat is not alone!! GG>>
Motorola calls for industry consolidation
By Richard Waters in San Francisco
Financial Times; May 05, 2003
The global semiconductor industry is in urgent need of mergers to deal with chronic over-capacity and the after-effects of the technology industry bust, according to a senior executive at Motorola, one of the biggest US chipmakers.
Motorola would consider deals and would join in if a broader consolidation in the industry was under way, said Ray Burgess, director of strategy and marketing for the chip division. "We're open to anything that will improve shareholder value," he said. "Right now, the right partner and the right deal haven't come along."
ST Microelectronics, the biggest European chipmaker, has eyed a merger with Motorola's semiconductor division, though so far no deal has emerged.
"This is an industry that is not heading down the path of consolidation. It needs to," Mr Burgess said. "It has to happen, the question is who will be first."
The global chip industry is suffering from an exaggerated cyclical downturn and a shift in technology that has left even big players such as Motorola struggling to keep up. Though always subject to vicious swings, the sector has suffered a bigger collapse and more protracted trough than usual since the tech bubble popped. Annual revenues for the chip companies fell from more than $200bn in 2000 to $140bn in 2001 and have recovered little since then.
At the same time, a shift to newer technology requiring much higher investment has left most chip companies facing huge capital investment and research and development bills.
"We've got twice the capacity we need, and yet there's no M&A," Mr Burgess said. "Our industry is a scale business - it's ripe for consolidation."
Motorola has already acted more aggressively than most to cut capacity and reduce capital commitments to the chip business. The number of its chip plants around the world has fallen from 28 to 8 under its "asset-light" strategy. The cuts helped the company reduce operating losses in its chip division from $1bn in 2001 to less than $300m last year, though one-off charges and write-downs took the total reported loss to $1.5bn.
Despite that, Motorola "still has output capacity for [revenues of] $6bn-$6.5bn," said Mr Burgess. Last year, chip revenues were $4.9bn. Most chip companies maintain a sizeable degree of unused capacity in preparation for the familiar cyclical upswings, though the lacklustre bounce from recent lows has raised questions about whether bigger cuts are needed. |
